Porch receives approval from TDI to set up an insurance reciprocal exchange, PIRE

Porch Group, a homeowners insurance and vertical software platform, has been approved by the Texas Department of Insurance (TDI) to form and licence Porch Insurance Reciprocal Exchange (PIRE), a new homeowners insurance reciprocal exchange.

PIRE’s establishment aligns with Porch’s strategy to increase profitability and stabilise earnings in its insurance reporting segment going forward by reducing direct exposure to claims and weather risks, the firm stated.

To recap, a reciprocal insurer is owned by its policyholders, like how Farmers Insurance and Erie Insurance operate. Porch will be the operator or attorney-in-fact, managing PIRE’s operations.

Once TDI completes customary administrative closing procedures, Porch will contribute $10 million cash in exchange for a surplus note to capitalise PIRE.

Around January 1st, 2025, Porch aims to sell Homeowners of America Insurance Company (HOAIC) to PIRE, including its policies, premiums, assets, and liabilities.

According to transaction details, Porch will in exchange receive an incremental surplus note equal to HOAIC’s end-of-year surplus less Porch’s existing $49 million surplus note which will be assigned to PIRE and continue forward.

Porch was advised by Eversheds Sutherland LLP and Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C., it also does not expect PIRE’s approval to impact its 2024 financials.

Going forward, as the operator, Porch will earn commissions and fees that blend to a take rate of approximately 20% of gross written premium and PIRE will manage an appropriate risk-based capital and surplus.

HOAIC is expected to maintain its “A” financial stability rating from Demotech.

Matt Ehrlichman, Chief Executive Officer, Porch, commented: “I would like to thank the TDI for their partnership throughout this process and to the Porch team for consistently living our values as we worked toward this moment. It has taken great effort, and we are pleased to have achieved this key milestone on our journey to become ‘A New Kind of Homeowners Insurance Company.’

“This is an important step for us to protect the homes of more homeowners in Texas and around the country where we plan to continue to be a great partner for both policyholders and insurance agents alike. With this change, Porch will be a simpler and more predictable business over time that has higher margins and growth potential.

“We believe this transaction and go-forward operation will create significant value for shareholders. We are looking forward to sharing more about our 2024 results, forward-looking financials, and details into our plans soon.”

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